California Home Loan Holder Symbolic of Current Mortgage Refinancing Problems
ShaRon Lewis is facing a 50% hike in the payment on her adjustable-rate mortgage next month. This week, she discovered she can’t qualify for a new loan with payments that she could afford.
Athough she’s willing to sell the West Hills home she’s owned for two years, she has been told it won’t fetch what she paid for it. “I have to laugh to keep from bawling,” the 30-something Lewis said.
Her situation is becoming increasingly common across the country amid the implosion of the business of bad credit mortgages.
Many would-be home buyers, and homeowners who want to home mortgage loan refinance, are finding that virtually overnight their status has changed: They no longer are eligible for the kind of easy-credit loans that helped millions of people join the ranks of property owners during the housing boom.
On Friday, Calabasas-based Countrywide Financial Corp., the nation’s No. 1 mortgage lender, told brokers it would stop making adjustable-rate loans covering 100% of a home’s value for customers with low credit scores and unverifiable incomes.
Susan Bies, a governor of the Federal Reserve, said in a speech Friday in Charlotte, N.C., that the troubles of sub-prime borrowers represented the “front end” of a wave the central bank was monitoring.
“This is not the end; this is the beginning,” she said.
A surge in the number of homeowners defaulting on sub-prime mortgages has triggered the collapse of more than a dozen lenders in recent months. Under pressure from federal banking regulators, lenders that are still standing are shutting out customers they were eagerly embracing just six months ago.
Even some borrowers already in the pipeline are being rejected.
“You don’t know how frustrating it is to [have] a client who was approved for a loan 60 days ago, and then the bank calls to say it won’t honor the deal,” said Philip X. Tirone, a senior loan officer with United Pacific Mortgage in West Los Angeles.
As recently as two months ago, consumers could qualify for a home purchase loan or a home mortgage refinancing even if they had low credit scores and no cash for a down payment. Not anymore.
“You’re back to real credit standards,” said Scott Simon, a mortgage expert and money manager at Pacific Investment Management Co. in Newport Beach.
In effect, the industry and new borrowers are paying the price for what many critics say were absurdly generous lending terms in recent years. In 2005 and 2006, mortgage brokers would joke, “If you can fog a mirror, you can get a home loan.”
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